Post July 4th – Dollar Buyers Return

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Market Drivers July 5, 2017
NK woes roil market early
Dollar finds buyers
Nikkei 0.25% Dax -0.1%
Oil $46/bbl
Gold $1220/oz.

Europe and Asia:
GBP UK PMI Services 53.4 vs. 53.5
EUR Retail Sales 2.6% vs. 2.3%

North America:
USD Factory Orders 10:00
USD Economic Optimism 10:00

On the first full trading day of the week with US corps back from the long holiday weekend, the buck found a bid in Asian and early European trade today.

Initially the markets were in a state of risk aversion as news that North Korea was able to test an ICBM missile that could potentially reach Alaska cast a pall on investor sentiment. But after an early dip below the 113.00 level USDJPY found buyers and the pair rose all the way towards 113.60 by mid morning London dealing.

Because of the US holiday, the key data is pushed back a day with ADP and ISM Services reports both due out tomorrow rather than today, but traders are clearly anticipating upbeat news as they continue to keep USDJPY well bid. A slew of positive US reports this week would go long way towards supporting the Fed’s thesis for further tightening and could help propel USDJPY towards 115.00 over the near term horizon.

The buck is also benefiting from some weakness in the major pairs. In UK the specter of Brexit and high inflation continues to weigh on data as the PMI Services much like the Manufacturing PMI earlier this week, missed its mark coming in at 53.4 versus 53.5 eyed. Although the miss was small and both surveys remain above the key 50 boom/bust level, the slowdown in activity is clear and suggests that UK growth will decelerate in H2 of this year. Such a turn of events makes it near impossible for the BOE to seriously consider tightening rates this year and cable is beginning to feel the scepticism of the market as the pair drifted towards the 1.2900 in morning London trade today.

Finally, the EURUSD also saw some weakness today as ECB member Nawotny stated that the central bank has yet to discuss any change in policy in contrast to hints a few weeks ago that it may be moving to a more neutral bias relatively soon. The dip in EURUSD was minor and the pair looks to be simply consolidating its recent gains. If US data disappoints this week, it could quickly resume its march towards 1.1500.

Boris Schlossberg
Managing Director

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